Pandemic forces cultivation facilities to adapt to rapidly changing markets

The business impacts of the coronavirus on the cannabis industry are still unfolding, yet it is already possible to see how the pandemic has affected the industry thus far. Most visibility, the crisis has induced a forced change in some companies that would have taken a longer time to materialize. “There are two sides of the coin in terms of the effect of the global pandemic on the cannabis industry,” says Mark Doherty, Executive Vice President of Operations with urban-gro. “There is the side of the new build, new construction, and new license, and then you have the operational side of the coin.”

Mark Doherty, Executive Vice President of Operations with urban-gro

Build, construction, and license
“We have seen project delays caused by the pandemic. Some of the stalled projects may not restart. On top of that, acquiring project financing and capital has become more difficult due to bank and investor terms. In the past, some companies got funded even though they were not fully prepared to execute their buildout. In today’s market, design expertise and relevant experience has become much more valuable. The projects with the proper design and construction teams are moving forward with the goal of being operational before year’s end.”

Operations
From an operational perspective, Mark observes that the biggest takeaway for growers is that they can do more with less. “Due to market conditions, they are required to do more with less,” he says. “In the past with cannabis being such a high value crop, there was the widespread mentality that you could take care of most issues by augmenting with more staff. However, because of COVID-19, companies could not bring the full labor force into the facility to comply with social distancing regulations. And then, companies realized they were successful with, say, 6 people only. So, why would you need 10 people?”

Indeed, many big Canadian LPs have been reducing staff and operations throughout the pandemic. “They were already on the verge of closing facilities and laying off staff; COVID-19 only forced that change -- faster.” The global pandemic forced companies to take a look at the past two years of operations and make some hard decisions. “At the beginning of the year, it was apparent that some companies weren’t going to be as profitable as forecasted, and investors responded in kind. And then, COVID-19 happened.”

Induced change
Companies have been forced to reduce unnecessary expenses. “Most companies focus on the electricity bill when it comes to expenses,” Mark points out. “But labor is a major cost; often, it is a close second.” At the same time, the focus on reducing the energy consumption remains, and an increasing number of growers are opting for LED lighting. “We are seeing a lot of interest in the transition to LEDs,” says Mark. “Good LED solutions can reduce the operational cost thanks to the amount of light intensity, spectrum, and higher efficiency ratings. A benefit of LED is reduced HVAC loads, as LED lights produce less heat than more traditional lighting solutions. But LEDs are also producing better yields. For several years, early in the LED market, the solutions available could not compete with HPS yields. The technology has advanced significantly, and we now have confirmation that LEDs are a better choice than HPS lighting.”

Photo by Fluence

“The industry was already adopting more efficient ways to grow cannabis, and COVID-19 accelerated that: more efficient use of labor, more efficient lighting, and more efficient space optimization.”

Getting ready for the market
There are also other takeaways from the current crisis, and from the recent cuts of big Canadian LPs. “One of the most difficult things when setting up a facility is to have an accurate forecast of what the market will look like once the facility is up and running,” Mark says. “Is it possible to scale the facility up and down based on the market demand? Smart investors and growers will be adapting their manufacturing to the market demand.”

For new construction and growers undergoing facility improvements, urban-gro developed Cultivation Space Programming to provide cannabis growers with facility performance insights early in the design process. The focus is on the efficient interaction between people, plants, and processes. “This program is based on the data that we have gathered working on more than 300 facilities,” Mark explains. “The efficiency of the cultivation starts with the design of the facility. We take the footprint, and we integrate the desired financial and production goals. With our proprietary dataset, we provide the necessary design, equipment and personnel required to achieve the facility goals. It is during the programming phase where it is possible to tweak key metrics and variables to ensure alignment to the customer’s expectations. It is not simply the design of a facility, but the supporting data which helps to make informed decisions. The programming process not only increases facility efficiency but ensures that the customer has a clear go-to-market strategy.”